Economic Report 2016 - Oil & Gas UK

• Rising levels of debt are likely to result in a lag between price recovery and an upturn in investment as companies will use free cash-flows to rebalance their corporate finances by servicing debt.

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Reserves/Resources

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• More than 43 billion barrels of oil equivalent (boe) have been recovered from the UKCS since first production in 1967.

• Oil & Gas UK believes that the remaining recoverable resource potential ranges from 10-20 billion boe: o 6-9 billion boe in existing reserves o 2-5 billion boe in potential additional resources o 2-6 billion boe in yet-to-find potential

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• Unsanctioned reserves within company business plans have fallen by over 30 per cent over the last 12 months, from 3.7 billion boe to 2.5 billion boe.

• The reserve replenishment ratio on the UKCS fell to 0.25 in 2015 as the volumes produced were four times higher than new volumes discovered. Drilling Activity • The downward trend in exploration and appraisal activity is expected to continue this year, with only six exploration and three appraisal wells spudded over the first six months of 2016.

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• Last year, 13 exploration wells and 13 appraisal wells were spudded in total.

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• Around 150 million boe of potentially recoverable reserves were discovered through exploration drilling in 2015, more than any year since 2011, although still lower than the average for the past ten years.

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• Forty-two development wells were drilled in the first half of this year, pointing to an anticipated annual decline of up to 30 per cent compared with the 129 development wells drilled in 2015. Total Expenditure • Total expenditure on the UKCS decreased from £26.6 billion to £21.7 billion in 2015 as companies sought to preserve free cash-flow by postponing discretionary spend. • Expenditure is likely to continue to decline this year to around £19 billion, as a result of further reductions in operating costs and capital investment. Capital Investment

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• Capital investment is falling rapidly to around £9 billion this year from a record £14.8 billion in 2014.

• Only one new field has been approved so far this year, with less than £100 million of fresh capital committed to the basin. This compares with five greenfield projects sanctioned in 2015 with associated development capital in excess of £4.3 billion.

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